Case Law Details

Case Name : Dr Sarmishtha Mukherjee Vs. Income Tax Officer (ITAT Kolkata)
Appeal Number : ITA NO. 1035/Kol/2011
Date of Judgement/Order : 31/05/2012
Related Assessment Year : 2006-07
Courts : All ITAT (4463) ITAT Kolkata (292)

We find that there is no dispute about the fact that the assessee was a ‘resident but not ordinarily resident’ for the relevant assessment year. The mere fact that she relocated to India on 29th May 2005 does not alter her residential status, so far Income Tax Act is concerned, with effect from that date. Quite fairly, learned Commissioner has also not specifically disputed this position even as he has laid lot of emphasis on the fact that she returned to India on 29th May 2005 and the fact that sale was concluded after that date i.e. 31st May 2005, but then nothing really turns on these facts because whether sales took place after assessee’s relocating to India or not, her residential status continues to be of the ‘resident but not ordinarily resident’ throughout the relevant previous year.

It is also not in dispute, as a plain reading of section 5(1)(a) would show, that so far as resident and not ordinarily resident assessee’s are concerned, only such income accruing or arising outside India can be brought to tax in their hands in India as is (i) received or is deemed to be received in India in such year by or on behalf of such person; or (ii) which is derived from a business controlled in or a profession set up in India. The assessee’s case, according to the learned Commissioner, falls in first category i.e. income received in India. However, what the stand so taken by the learned Commissioner overlooks is the fundamental principle that it is the place of first receipt of income which is material for the purposes of applying the test in Section 5(1)(i). The place of receipt of an income is the place where it is received by the  assessee in its character of income; a mere transfer of money from one bank account to another bank account cannot be considered a receipt of income because one cannot receive income from himself. Income is what comes in from outside sources. Therefore, first time an assessee receives it- whether directly or even through the agent, it is income, but any transfers subsequent to such receipts will not even result even in receipt, much less an income. In the cases of non-residents, as also in the cases of ‘resident but not ordinarily resident’ – subject to exceptions which are not relevant for the present purposes, unless, at the time money is received in India, it is received as income from an outside source, such receipt will not be an income receipt . What an assessee does to such receipt subsequently does not govern the situs of its taxability; its only the place of initial receipt, as income character, will be relevant for these purposes. In the light of this legal position, let us examine the facts of the present case. It is not even in dispute that the amounts were first received in United Kingdom and credited to assessee’s bank account in National Westminster Bank plc there. The assessee has also filed copies of the bank statements which clearly establish this fact. The income was thus received in United Kingdom and it is only subsequent remittance, which is wholly irrelevant for taxability purposes, which was received in India. In this view of the matter, learned Commissioner was clearly in error in holding that the capital gains on sale of house property in UK was received in India, and, for this short reason, taxable in India. The very foundation of learned Commissioner’s impugned revision order is thus unsustainable in law.

INCOME TAX APPELLATE TRIBUNAL,KOLKATA

ITA NO. 1035/Kol/2011 Assessment year 2006-07

Dr Sarmishtha Mukherjee

Vs.

Income Tax Officer

Date of pronouncing the order : May 31 , 2012

ORDER

Per Pramod Kumar:

1. By way of this appeal, the assessee appellant has challenged correctness of order dated 20th January 2011, passed by the CIT(A) in the matter of assessment under section 143(3) r.w.s. 263 of the Income Tax Act, 1961, for the assessment year 2006-07,

2. Vide our order of even date, we have set aside the revision order consequent to which impugned assessment was framed. As the revision  order itself stands vacated, the very foundation of impugned assessment ceases to hold good in law. The impugned assessment must also stands quashed. We may, however, add that as the revision order has been vacated on merits, the same reasons, for which revision order is vacayted, will hold good here as well. These reasons are reproduced below for ready reference :

2. To adjudicate on this appeal, only a few material undisputed facts need to be taken note of. The assessee is a medical practitioner. Her assessment under section 143(3) was completed on 23.12.2008. However, subsequent to the finalization of scrutiny assessment and upon perusal of the assessment records, learned Commissioner was of the view that the assessment so finalized was erroneous and prejudicial to the interest of the revenue as the capital gains on sale of her house property in United Kingdom was not brought to tax in her hands, even though she was a ‘resident but not ordinarily resident’ and even though the sale proceeds of the said house property were received in India. The assessee had lived in UK for several years, before finally returning to India on 29th May 2005. There is also no dispute about the fact that the assessee’s residential status for the relevant previous year was ‘resident but not ordinarily resident’. The assessee owned a residential property at “2 Clos Yr Arad, Castle View, Caperphilly CF83 1TN, UK” and that, vide letter dated 20th January 2005, one Solicitor firm, by the name of ‘Charles, Crookes and Jone’ had agreed to handle sale of this property. Vide letter dated 31st May, 2005, this solicitor firm advised the assessee that the sale of property was completed and balance of £ 72,708.19 was due to this assessee. This amount was paid over by the said solicitor firm to the assessee and credited to her National Westminster Bank plc account no. 89485823, on 1st June 2005 . There is also dispute that, as noted by the Commissioner in his impugned order, “a part of the sale proceeds of Rs 32,06,728.87 was deposited in the HSBC account on 29.6.2005 and that the balance amount of £ 31,000 was transferred to SBI Bonds and fixed for 1 year”. On these facts, learned Commissioner’s stand was that the sale was completed after the assessee returned to India and the sale proceeds of the  house property were also received by her in India, and that, for these reasons, the income was taxable in the hands of the assessee in India even though assessee was admittedly a ‘resident but not ordinarily resident’. The Assessing Officer was, accordingly, directed to bring to tax the capital gains, on sale of assessee’s house property in UK, while computing assessee’s income taxable in India.

3. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position.

4. We find that there is no dispute about the fact that the assessee was a ‘resident but not ordinarily resident’ for the relevant assessment year. The mere fact that she relocated to India on 29th May 2005 does not alter her residential status, so far Income Tax Act is concerned, with effect from that date. Quite fairly, learned Commissioner has also not specifically disputed this position even as he has laid lot of emphasis on the fact that she returned to India on 29th May 2005 and the fact that sale was concluded after that date i.e. 31st May 2005, but then nothing really turns on these facts because whether sales took place after assessee’s relocating to India or not, her residential status continues to be of the ‘resident but not ordinarily resident’ throughout the relevant previous year. It is also not in dispute, as a plain reading of section 5(1)(a) would show, that so far as resident and not ordinarily resident assessee’s are concerned, only such income accruing or arising outside India can be brought to tax in their hands in India as is (i) received or is deemed to be received in India in such year by or on behalf of such person; or (ii) which is derived from a business controlled in or a profession set up in India. The assessee’s case, according to the learned Commissioner, falls in first category i.e. income received in India. However, what the stand so taken by the learned Commissioner overlooks is the fundamental principle that it is the place of first receipt of income which is material for the purposes of applying the test in Section 5(1)(i). The place of receipt of an income is the place where it is received by the  assessee in its character of income; a mere transfer of money from one bank account to another bank account cannot be considered a receipt of income because one cannot receive income from himself. Income is what comes in from outside sources. Therefore, first time an assessee receives it- whether directly or even through the agent, it is income, but any transfers subsequent to such receipts will not even result even in receipt, much less an income. In the cases of non-residents, as also in the cases of ‘resident but not ordinarily resident’ – subject to exceptions which are not relevant for the present purposes, unless, at the time money is received in India, it is received as income from an outside source, such receipt will not be an income receipt . What an assessee does to such receipt subsequently does not govern the situs of its taxability; its only the place of initial receipt, as income character, will be relevant for these purposes. In the light of this legal position, let us examine the facts of the present case. It is not even in dispute that the amounts were first received in United Kingdom and credited to assessee’s bank account in National Westminster Bank plc there. The assessee has also filed copies of the bank statements which clearly establish this fact. The income was thus received in United Kingdom and it is only subsequent remittance, which is wholly irrelevant for taxability purposes, which was received in India. In this view of the matter, learned Commissioner was clearly in error in holding that the capital gains on sale of house property in UK was received in India, and, for this short reason, taxable in India. The very foundation of learned Commissioner’s impugned revision order is thus unsustainable in law. In view of these discussions, we uphold the challenge to impugned revision order and set aside the same. The order of the learned Commissioner thus stands vacated.

3. These observations cover the quantum addition made in the impugned assessment order, and the addition made in the said order must also stand cancelled for these reasons. That aspect, however, is only academic as the revision order itself is cancelled.

4. In view of the reasons set out above, and in view of the fact that the revision order itself stands vacated, we set aside the impugned assessment order as well.

5. In the result, the appeal is allowed. Pronounced in the open court today on 31st day of May, 2012.

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